The bigger the boom, the deeper and longer the bust. After two decades of runaway growth, by 2020, China’s real estate bubble had pushed home prices to more than 17 times the average salaries.
A perfect storm drove the boom, including reforms in 1998 that shifted housing from state provision to private ownership, the migration of nearly half a billion Chinese from rural areas to cities and abundant credit from state banks.
A frenzy of construction transformed China’s skyline, families poured savings into apartments and property speculation became the norm, helping millions of middle-class households to feel richer and spend more.
The turning point came during the country’s first wave of COVID-19 lockdowns when President Xi Jinping’s government imposed sweeping new rules on how much debt property developers could take on. The result of the “three red lines” reforms was brutal. Real estate giants like Evergrande, Country Garden and dozens of smaller firms defaulted, with more than 70 developers either going bust or needing state-backed bailouts to survive.
More than five years later, the subsequent bust shows no sign of easing. According to Barclays, a British bank, more than $18 trillion (€15.38 trillion) in household wealth has evaporated as home values collapse. Meanwhile, construction activity — once a key driver of gross domestic product (GDP) — has slumped so badly that it now drags overall growth below Beijing’s targets.
Beijing censors private property data
In a sign of just how sensitive the downturn has become, Chinese officials last month told private data providers to stop publishing home sales figures, cutting off one of the few independent windows into the current woes in the real estate market.
The move followed a 42% year-on-year drop in new home sales by the top 100 builders in October, the largest monthly drop in 18 months, according to China Real Estate Information.
Anne Stevenson-Yang, founder and research director of the Taipei-based J Capital Research, thinks this move helps mask the true price decline.
“You likely have a market-wide drop of 50%, which could go down to 85% before it balances out,” she told DW.
Giving an example of a colleague from the central city of Xi’an who was offered three homes for the price of one by a developer, Stevenson-Yang said it was the equivalent of a two-thirds drop on each property.
In Tier‑1 cities like Beijing and Shanghai, average home prices have slipped by about 10% from their peak, Oxford Economics wrote in September, with cooling demand for luxury units spurring even steeper markdowns. The worst effect is, however, felt in Tier‑2 and Tier‑3 cities, including Chengdu and Dongguan, where values plunged by up to 30%.
Half-built and empty apartments litter the skyline
Across China, the crash has left half‑finished projects, ghost cities and millions of households trapped in negative equity, sparking public anger and sporadic protests as buyers hope that Beijing will step in with stimulus measures to shore up demand.
“There’s still a lot of excess supply — up to 3-5 years of unsold apartments and housing, mostly in the smaller cities,” George Magnus, research associate at the UK’s University of Oxford China Center, told DW. “It’ll take a long time to clear, especially as the cohort of first-time buyers — 20-35 year olds — is now declining.”
Having climbed to 1.41 billion, China’s population is now slipping backwards, marking the end of decades of growth.
Demand for construction raw materials, including steel and cement, is downImage: CFOTO/CFOTO/picture alliance
China’s major economic growth driver evaporates
Real estate once accounted for up to a quarter of China’s GDP, helping growth remain in double digits for more than a decade during the 2000s and early 2010s. The slowdown has since dragged economic growth to around 5% last year — still impressive, but down sharply from the boom years due to the knock-on effects on the rest of the country.
“[Chinese] steel and cement prices and output are dropping, employment and [business] investment are weak — all of them collateral damage [from the property crash],” Stevenson-Yang told DW.
China was the world’s largest consumer of iron ore, copper, steel, and cement, much of it tied to construction. Exporters Australia, Brazil and Chile are among the global players suffering from the falloff in Chinese demand. As homeowners feel the pinch, the slowdown weakens household consumption, reducing imports of foreign luxury brands and autos.
Property long served as the cornerstone of household wealth in ChinaImage: Zhou Jianping/dpa/picture alliance
Targeted stimulus, no broad rescue
Beijing is keen to avoid another speculative bubble, so stimulus measures to prop up the real estate market have not been as generous as in previous downturns. The Chinese government stepped in after the 2008 global financial crisis, the 2015 stock market crash and during the pandemic.
Rather than coming to the rescue this time, many China watchers believe the government is allowing home prices to deflate gradually so that policymakers can prioritize stability and long‑term restructuring over short-term stimulus.
“You get to a point that you can’t stimulate because the amount of money required would be too great — it would be inflationary,” said Stevenson-Yang.
Bloomberg reported last month that Beijing is, however, considering subsidizing mortgage interest payments, lowering transaction fees and offering bigger income tax rebates for borrowers.
Millions of Chinese homeowners are in negative equityImage: Lian Fei/Blue Jean Images/IMAGO
Prices could drop for many more years
Property crashes typically take around five years to play out. In the United States, the housing bust that began in 2007 took until 2012 for prices to stabilize. In Spain, the post‑2008 collapse also dragged on for roughly five years before recovery signs appeared.
Japan’s post-bubble collapse, from 1991 to the 2000s, is often cited as the most prolonged real estate crisis, with home values stagnating for more than a decade and never fully regaining their pre‑bubble highs.
Stevenson-Yang believes the Chinese property sector is on course for another “10 years of negative or flat growth,” while analysts at S&P Global Ratings believe the downturn could persist well into the late 2020s. Some forecasts hint at recovery next year or in 2027.
That’s a hard pill for ordinary Chinese families to swallow. Many of them poured their savings into apartments that have lost value, leaving them stuck with mortgages they can’t escape and homes they can’t sell. Worse still, property values may remain far below the dizzying highs of 2020 for the foreseeable future.
The story is the same the world over, according to Magnus, where homeowners often assume that prices will continue to rise forever.
“When the party ends and the cycle goes into reverse … the consequences can be very serious,” he told DW.
Edited by: Rob Mudge
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